By Kanishk Gaur
The recent trends of billionaire club entrepreneurs investing billions in cryptocurrency has led to a sudden rise in their value. What started as a joke eventually promoted Dogecoin’s–less non-open-source peer-to-peer cryptocurrency–value up. The “Bring your Own Cryptocurrency” trend started in 2013. Master coin raised $600,000 to create a Bitcoin Exchange–a platform for transactions. It saw start-up’s shifting to initial coin offerings (ICO) to scale up businesses, crowdfund or reach out to venture capitas.
So, what exactly does ICO offer and how it is different from an initial public offering (IPO)?
While an IPO involves the issuance of securities in return for an investment, an ICO entails offering a crypto coin or a token in return for investment. While IPOs are listed on public exchanges (NASDAQ, NYSE. London Stock Exchange, and Tokyo Stock Exchange) and have enforcement by regulators, ICOs don’t have any government regulation. Anyone and everyone can launch their own ICO if they have technology and the marketing ecosystem in place.
Cryptocurrencies are also banned in major countries, including India, United Kingdom, Russia and China. Hence ICO’s remain a dodgy affair.
Another issue with ICO’s is the security of coin–roughly 10% of funds raised through ICOs between 2015 and 2018 were lost or stolen via hacks, according to reports of a leading consulting firm. Coin Dash was a classic case where fraudsters stole $7 million. Such thefts are just the tip of the iceberg, a broader conspiracy theory states that hackers have stolen more than $1.3 billion through Fake initial coin offerings.
Hence, the bigger issue remains Fake ICOs, which are marketed across social media by roping in highly followed fanbase social media celebrities and shared links across messaging platforms, such as Telegram and Signal, which offer no cooperation to law enforcement.
The lack of metadata analysis offers a great opportunity to share such Ponzi scheme links. The free coin giveaway scam has not only fooled young users but also celebrities.
Robert Farkas, Raymond Trapani, Sohrab “Sam Sharma” of Centra Tech were founders of one such Ponzi ICO. They duped investors of more than $25 million by claiming to launch “Centra Card,” which would allow users to buy with their digital currency at any business accepting Visa or Mastercard.
Centra Tech founders hired celebrities, such as musician DJ Khaled and boxer Floyd Mayweather, to promote fake ICO.
Bollywood celebrities have also paid a heavy price for their gluttony with the dodgy coin.
The government “The Cryptocurrency Regulation of Official Digital Currency Bill, 2021”, which contemplates a ban on cryptoassets, has brought unwanted attention to these currencies. As the world moves towards global decentralised applications, digital currencies are expected to take over, enabling transactions on decentralised principles such as blockchains. Banning Bitcoin and Ethereum creates more risk.
Given these dynamics, its important a law defining the uses of cryptocurrencies and exchanges is created by governments. Its time Digital Flat currencies are understood better and explained to the masses to prevent future frauds.
The author is founder, India Future Foundation. Views are personal